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Heterogeneity, Adverse Selection and Valuation with Endogenous Labor Supply


  • Marcelo Bianconi


This paper considers models of intratemporal consumption-labor choice and intertemporal consumption choice under heterogeneity and private information in preferences towards labor. We show that market regime regarding unemployment insurance is important to determine the effects of heterogeneity and private information on allocations and valuations. There are two main results. First, intertemporal choice can mitigate adverse selection. Second, in countries where unemployment insurance is generous capital markets should have low usage and the risk-free rate of return is low. However, in countries where unemployment insurance is less generous, capital markets should have more usage and the risk-free rate of return is higher.

Suggested Citation

  • Marcelo Bianconi, 2004. "Heterogeneity, Adverse Selection and Valuation with Endogenous Labor Supply," Discussion Papers Series, Department of Economics, Tufts University 0412, Department of Economics, Tufts University.
  • Handle: RePEc:tuf:tuftec:0412

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    References listed on IDEAS

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    More about this item


    private information; adverse selection; lottery; unemployment insurance; incomplete markets;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • G1 - Financial Economics - - General Financial Markets
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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